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When is Gibrat's Law a Law?

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  • Daunfeldt, Sven-Olov

    (The Ratio Institute)

  • Elert, Niklas

    (The Ratio Institute)

Abstract

The purpose of this paper is to investigate if the industry context matters for whether Gibrat's law is rejected or not using a dataset that consists of all limited firms in 5-digit NACE-industries in Sweden during 1998-2004. The results reject Gibrat's law on an aggregate level, since small firms grow faster than large firms. However, Gibrat's law is confirmed about as often as it is rejected when industry-specific regressions are estimated. It is also found that the industry context - e.g., minimum efficient scale, market concentration rate, and number of young firms in the industry - matters for whether Gibrat's law is rejected or not.

Suggested Citation

  • Daunfeldt, Sven-Olov & Elert, Niklas, 2010. "When is Gibrat's Law a Law?," Ratio Working Papers 158, The Ratio Institute.
  • Handle: RePEc:hhs:ratioi:0158
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    More about this item

    Keywords

    Firm growth; firm size; job creation; small firms;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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